National Labor Relations Board v. Daycon Products Co.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-1022

NATIONAL LABOR RELATIONS BOARD,

Petitioner,

and

DRIVERS, CHAUFFEURS AND HELPERS LOCAL UNION NO. 639,

Intervenor,

v.

DAYCON PRODUCTS COMPANY, INC.,

Respondent.

On Application for Enforcement of an Order of the National Labor
Relations Board. (5-CA-35043)

Argued: January 31, 2013 Decided: February 28, 2013

Before NIEMEYER, GREGORY, and DAVIS, Circuit Judges.

Enforcement neither granted nor denied; remanded by unpublished
opinion. Judge Davis wrote the opinion, in which Judge Niemeyer
and Judge Gregory joined.

ARGUED: Paul Rosenberg, BAKER & HOSTETLER, LLP, New York, New
York, for Respondent. Barbara Ann Sheehy, NATIONAL LABOR
RELATIONS BOARD, Washington, D.C., for Petitioner. John Robert
Mooney, MOONEY, GREEN, BAKER, SAINDON, MURPHY & WELCH, P.C.,
Washington, D.C., for Intervenor. ON BRIEF: Lafe E. Solomon,
Acting General Counsel, Celeste J. Mattina, Deputy General
Counsel, John H. Ferguson, Associate General Counsel, Linda
Dreeben, Deputy Associate General Counsel, Usha Dheenan,
Supervisory Attorney, MacKenzie Fillow, Attorney, NATIONAL LABOR
RELATIONS BOARD, Washington, D.C., for Petitioner.

Unpublished opinions are not binding precedent in this circuit.

2
DAVIS, Circuit Judge:

The National Labor Relations Board (“the Board”) applies to

this Court for enforcement of its decision and order, in which

it found that Daycon Products Company, Inc. (“Daycon”) committed

an unfair labor practice when it unilaterally reduced the wages

of eight of its employees. The Board reached this result without

applying, distinguishing, or even mentioning the “sound arguable

basis” test that Board precedent suggests should apply. We

therefore remand this case to the Board for it to apply or

distinguish that test.

I.

A.

Daycon is a Maryland-based corporation engaged in the

manufacture and distribution of janitorial, maintenance, and

hardware supplies. At all times relevant to this appeal,

Drivers, Chauffeurs and Helpers Local Union No. 639 (“the

Union”) has represented Daycon’s drivers, warehouse employees,

and repairmen. Daycon and the Union entered into a series of

collective-bargaining agreements (“CBAs”), each effective for a

period of several years. One such agreement was in effect from

January 16, 2004, through January 31, 2007 (the “2004

Agreement”). The 2004 Agreement was followed by a new CBA (“the

2007 Agreement”), which, by its terms, was effective from March

3, 2007, through January 31, 2010.

3
 Douglas Webber, the Union’s business agent, was “the main

person for the Union who bargained for” the 2007 Agreement. J.A.

13. 1 During negotiations, Webber requested information on

employee wage rates. In response, Daycon sent a chart listing

each employee’s hire date, job title, and wage rate. J.A. 127.

Webber testified that the Union used that chart “to come up with

[its] proposals for the successor contract, for a starting point

of wages.” J.A. 16. As mentioned above, the parties reached

agreement. Though the wage rates in the chart were not set out

in the 2007 Agreement, the 2007 Agreement did require Daycon to

give each employee $0.55 annual raises “to his/her rate of pay.”

J.A. 141.

Nearly two years into the 2007 Agreement, after looking

into an unrelated payroll issue in January 2009, Daycon’s human

resources director, Jodie Kendall, conducted a general audit of

employee wage rates. She discovered that due to clerical errors,

eight employees -- all within the bargaining unit – had received

raises in 2004 that were slightly greater than those established

by the 2004 Agreement. Kendall estimated that as a result of

these errors, the employees had been “overpaid to the tune of

about $80,000” since 2004. J.A. 57. She then met with Daycon’s

1
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties.

4
president, John Poole, and they decided to reduce the wage rates

of the eight employees.

On April 16, 2009, Kendall sent a letter to the affected

employees setting out the wage discrepancies and indicating

Daycon’s intent to “correct[]” the “overpayment.” J.A. 200. The

following day, Kendall and Daycon’s attorney, Jay Krupin, met

with Webber to discuss the issue. Webber, who was provided with

the April 16 letter at that meeting, stated his view that a wage

reduction would violate the then operative 2007 Agreement. In a

letter to Krupin dated April 23, 2009, Webber communicated the

Union’s intent not to “renegotiate the wage rates that [were]

agreed upon” in the 2007 Agreement. J.A. 201. On May 1, 2009,

Krupin sent Webber a letter setting out the total overpayments,

and threatening “to seek recovery for the full amount of

overpayments mistakenly remitted to the bargaining unit

employees” if “the Union continue[d] to contest [Daycon’s] right

to correct the error on a going forward basis . . . .” J.A. 203-

04.

On May 20, 2009, Kendall sent Webber a fax setting out the

pay discrepancies, as well as the “bonus” amounts that Daycon

planned to give five of the employees to ease their transition

to reduced wage rates. After receiving the fax, Webber called

Kendall and told her that the Union did not agree to a bonus or

a reduction of wage rates, and would seek to enforce the 2007

5
Agreement. Daycon paid the first of three planned installments

of the bonuses on May 22, 2009, when the eight workers’ wage

rates were reduced. It did not pay the second or third

installments.

B.

The Union filed an unfair labor practice charge with the

Board on June 4, 2009. The Board’s Acting General Counsel then

issued a complaint, alleging that Daycon violated the National

Labor Relations Act (“the Act”) by unilaterally reducing the

contractual wage rates of the eight employees.

An administrative law judge (“ALJ”) conducted a hearing on

the matter on November 9 and 10, 2009. On January 8, 2010, the

ALJ issued a decision recommending dismissal of the complaint.

The ALJ concluded that Daycon’s actions merely “restored the

agreed upon wages to conform them to those previously negotiated

by the parties.” J.A. 81. Accordingly, the ALJ found that Daycon

“did not engage in a mid-term modification of the parties’

collective-bargaining agreement.” Id. In reaching this

conclusion, the ALJ relied principally on two Board decisions.

First, the ALJ cited Eagle Transport Corp., 338 NLRB 489 (2002),

“for the proposition that an Employer’s administrative error in

a paycheck may be corrected without violating the Act.” J.A. 81.

Next, the ALJ cited Foster Transformer Co., 212 NLRB 936 (1974),

6
for the proposition that wage rates mistakenly inflated “at some

time in the distant past” need not be perpetuated. J.A. 82.

The General Counsel and the Union each filed exceptions to

the ALJ’s decision. Daycon filed three one-sentence cross-

exceptions, one of which challenged the ALJ’s rulings limiting

questioning of Webber concerning the content of negotiations

leading up to the CBAs.

The Board rejected the ALJ’s conclusion in a decision

issued on August 12, 2011. The Board found that “the current

wage actually earned by each employee in early 2007” was “the

basis for computing wages and wage rates in” the 2007 Agreement.

J.A. 78. “Consequently, once [Daycon] entered into the [2007

Agreement], it was barred from unilaterally altering unit

employees’ wage rates contained therein.” Id. The Board

distinguished Eagle Transport and Foster because in neither case

was a CBA in effect. J.A. 77 n.3. It noted that the allegation

of an unlawful midterm contract modification involved the 2007

Agreement, not the 2004 Agreement, and that it “need not pass

here on the question whether [Daycon] could lawfully have

corrected its mistake at any point prior to the execution of the

[2007 Agreement].” J.A. 77. The Board “disregarded” Daycon’s

cross-exceptions because it found that they “lack[ed] supporting

argument and d[id] not meet the minimum requirements of Sec.

7
102.46(b) of the Board’s Rules and Regulations.” J.A. 77 n.1.

The Board summarized its holding as follows:

In sum, while the 2007-2010 wage[] rates and
subsequent raises for the eight employees in dispute
may represent a perpetuation of an erroneous prior pay
raise, they nevertheless represent the bargain struck
in good faith by the parties. [Daycon] could not
thereafter modify those wages during the contract term
without the Union’s consent. When it did so, it
violated Section 8(a)(5) and (1) and Section 8(d) of
the Act.

J.A. 78.

Daycon filed a motion for reconsideration, which the Board

denied. The Board then applied to this Court for enforcement of

its order. 2 The Union filed a separate brief after we granted its

motion to intervene; as well, the Board ceded some of its time

allotted for oral argument to the Union.

II.

Daycon’s principal argument is that an employer is

permitted to reduce unilaterally employee wage rates inflated by

an administrative error, regardless of whether a new CBA is

executed after the error. Daycon also argues that because the

Board interpreted the complaint to allege a contract

modification under § 8(d) of the Act, Daycon needed only a

2
Daycon chose not to file a cross-petition for review of
the Board’s order.

8
“sound arguable basis” for its interpretation of the contract to

avoid a violation.

A.

“Board findings of fact are conclusive as long as they are

‘supported by substantial evidence on the record considered as a

whole.’” Evergreen Am. Corp. v. NLRB, 531 F.3d 321, 326 (4th

Cir. 2008) (quoting 29 U.S.C. § 160(e)). “Substantial evidence

is ‘such relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.’” Evergreen, 531 F.3d at 326

(quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)).

“While the Board may not base its inference on pure

speculation[,] it may draw reasonable inferences from the

evidence.” Overnite Transp. Co. v. NLRB, 280 F.3d 417, 428 (4th

Cir. 2002) (en banc) (alteration, ellipsis, and internal

quotation marks omitted).

Although questions of law are ordinarily reviewed de novo,

if the Board’s construction of the Act is “reasonably

defensible,” Ford Motor Co. v. NLRB, 441 U.S. 488, 497 (1979),

“it is entitled to considerable deference,” Bonnell/Tredegar

Indus., Inc. v. NLRB, 46 F.3d 339, 343 (4th Cir. 1995). “No

special deference is extended to the Board’s interpretation of

collective bargaining contracts, but courts are mindful of the

Board’s considerable experience in interpreting collective

9
bargaining agreements.” Id. at 343 (citations and internal

quotation marks omitted).

“An agency is by no means required to distinguish every

precedent cited to it by an aggrieved party.” LeMoyne-Owen Coll.

v. NLRB, 357 F.3d 55, 60 (D.C. Cir. 2004). “But where . . . a

party makes a significant showing that analogous cases have been

decided differently, the agency must do more than simply ignore

that argument.” Id. at 61.

Under Section 8(a) of the Act,

It shall be an unfair labor practice for an employer--
(1) to interfere with, restrain, or coerce
employees in the exercise of the rights
guaranteed in section 157 of this title
[protecting, among other things, the right to
bargain collectively]; [and]

. . .

(5) to refuse to bargain collectively with the
representatives of his employees . . . .

29 U.S.C. § 158.

Section 8(d) defines collective bargaining as “the

performance of the mutual obligation of the employer and the

representative of the employees to meet at reasonable times and

confer in good faith with respect to wages, hours, and other

terms and conditions of employment . . . .” 29 U.S.C. § 158(d).

“An employer’s duty under § 8(d) to engage in collective

bargaining prohibits it from unilaterally terminating or

modifying a collective bargaining agreement during the effective

10
term of the agreement.” Bonnell, 46 F.3d at 342 (citing 29

U.S.C. § 158(d)). Neither party is obligated “to discuss or

agree to any modification of the terms and conditions contained

in” a CBA. 29 U.S.C. § 158(d). “Moreover, a violation of § 8(d)

constitutes an unfair labor practice under § 8(a)(1) and (5) of

the Act.” Bonnell, 46 F.3d at 343.

Put simply, it is an unfair labor practice for a party to a

CBA to modify a term of employment contained in the CBA without

the other party’s consent.

B.

Daycon first argues that Eagle Transport, 338 NLRB at 493-

94, Foster, 212 NLRB at 936, and Dierks Forests, Inc., 148 NLRB

923, 925-26 (1964), establish that “an employer may unilaterally

correct an administrative error resulting in employees being

paid more than is required under its existing policies.” Daycon

Br. 10. Notably absent from these cases, however, is an 8(d)

analysis discussing an alleged contract modification, like the

one on which the Board based its decision here. Indeed, the

Board specifically declined to “pass here on the question

whether [Daycon] could lawfully have corrected its mistake at

any point prior to the execution of the [2007 Agreement].”

As the Board correctly notes in its brief, “Daycon has

cited no authority showing that an employer’s mistake during a

prior contract term excuses a mid-term modification during a

11
subsequent contract signed by the parties.” Board Br. 19. We

thus have no hesitation in concluding that neither Eagle

Transport, Foster, nor Dierks Forests bear on the contract-

modification ground on which the Board ruled here.

C.

Daycon also argues that the Board failed to apply the

appropriate legal test, which it argues is the “sound arguable

basis” test. It further argues that if that test is applied,

Daycon satisfies it.

An example of the Board’s application of the “sound

arguable basis” test is Bath Iron Works Corp., 345 NLRB 499

(2005), enforced sub nom. Bath Marine Draftsmen Assn. v. NLRB,

475 F.3d 14 (1st Cir. 2007). There, the Board stated the test as

follows: “[w]here an employer has a ‘sound arguable basis’ for

its interpretation of a contract and is not ‘motivated by union

animus or . . . acting in bad faith,’ the Board ordinarily will

not find a violation.” Bath Iron Works, 345 NLRB at 502 (citing

NCR Corp., 271 NLRB 1212, 1213 (1984)(emphasis added)). The idea

behind this test is that “a mere breach of contract is not in

itself an unfair labor practice,” NCR Corp., 271 NLRB at 1213

n.6, and “the Board will not enter the dispute to serve the

12
function of arbitrator in determining which party’s

interpretation is correct,” id. at 1213. 3

Though the Board has provided little guidance as to what

makes an argument “sound” and “arguable,” it has focused on

reasonableness, stating that where both parties “present[]

reasonable interpretations of the applicable contract language,”

the employer has a sound arguable basis and there is no unfair

labor practice. Bath Iron Works, 345 NLRB at 503. In Bath Iron

Works, for example, the central issue was whether the employer

violated the Act by merging its pension plan with that of its

corporate parent, without the consent of three unions

representing the employees. Id. at 499. Each relevant CBA

referred to plan documents in the section dealing with employee

benefit plans, and two of the three CBAs explicitly stated that

the terms and conditions of employee benefit plans were governed

by plan documents. Id. at 499-500. The employer cited several

articles in the plan documents as a source of authority to

implement the merger, and argued that it therefore had a “sound

arguable basis” to merge the plans without modifying the CBA.

Id. at 500. The General Counsel, on the other hand, argued that

the plan documents were not part of the CBAs and did not contain

3
The 2007 Agreement provides for arbitration “[i]n the
event of a dispute regarding [its] application or interpretation
. . . .” J.A. 157-58.

13
a right to merge the plan. Id. at 503. The Board concluded that

the General Counsel’s interpretation was “no more [reasonable]

than the [employer’s],” and thus dismissed the complaint. Id.

In other cases applying the “sound arguable basis” test to

reject the General Counsel’s unfair labor practice allegations,

the Board has also found the competing contract interpretations

to be substantially equally reasonable. See NCR Corp., 271 NLRB

at 1213 (“The Board is not compelled to endorse either of these

two equally plausible interpretations of the contract’s

operation in this case.”); Vickers, Inc., 153 NLRB 561, 570

(1965) (finding that the employer’s interpretation of the

disputed contract clause “not only was reasonable . . . but also

was an interpretation which found tacit support from the Union’s

conduct”).

In the case at hand, because the Board interpreted the

complaint to allege a contract modification under § 8(d), the

central inquiry is what wage rates (if any) were embodied in the

2007 Agreement. See 29 U.S.C. § 158(d) (stating that neither

party is obligated “to discuss or agree to any modification of

the terms and conditions contained in” a CBA). The 2007

Agreement required Daycon to give each employee $0.55 annual

raises “to his/her rate of pay.” J.A. 141. The Board concluded

that, through this language, the 2007 Agreement contained “the

current wage actually earned by each employee in early 2007,”

14
when the agreement was executed. J.A. 78. Daycon argues, to the

contrary, that “rate of pay” refers to wage rates without the

mistakenly given raises.

As noted above, Daycon had provided the Union with a list

of employees and their wage rates during negotiations for the

2007 Agreement. We think this fact suggests that both parties

understood “his/her rate of pay” to refer to those rates; there

is no contrary indication that “rate of pay” refers to the rates

that would have existed had Daycon not made the clerical errors

years earlier, during the term of the 2004 Agreement. It is thus

most probable that the Board concluded that Daycon’s

interpretation of the CBA was not sound or arguable. (Indeed,

counsel so contended at oral argument.) But because the Board

failed to even mention the “sound arguable basis” test, let

alone apply it, we are left to guess at its reasoning. This

Court thus “really has no way of knowing if the rationale it

discerns is in fact that of the agency, or one of [our] own

devise. Yet only the former can provide a legitimate basis for

sustaining agency action.” LeMoyne, 357 F.3d at 61.

In one short paragraph in its brief, the Board argues that

the contract provides no basis for unilaterally modifying wage

rates, and that the Board was therefore permitted to reject

Daycon’s “strained” argument without even mentioning the test.

Board Br. 15. But we think that is an argument as to the result

15
of applying the test, not the applicability of the test itself.

Under the circumstances, we think it appropriate to give the

Board the chance to expressly apply or distinguish the “sound

arguable basis” test. 4

III.

For the reasons set forth, the application for enforcement

of the Board’s order is neither granted nor denied, and the

matter is remanded for further proceedings not inconsistent with

this opinion. Cf. Manhattan Ctr. Studios, Inc. v. NLRB, 452 F.3d

813, 816 (D.C. Cir. 2006) (“The Board cannot ignore its own

relevant precedent but must explain why it is not controlling.”)

(quotation marks and citation omitted); id. (“If we conclude

that the Board misapplied or deviated from its precedent, we

often remand with instructions to remedy the

misapplication/deviation.”).

REMANDED

4
We are satisfied that the Board acted within its
discretion in refusing to consider Daycon’s cross-exception and
denying Daycon’s motion to reconsider. We thus decline to
conclude, as Daycon argues, that the Board’s decision rests on
issues which were not fully or fairly litigated.

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